1. Field of the Invention
This invention relates generally to buying or selling commodities in a market, and, more specifically, to a system, method, and computer program product for executing an order to buy or sell a specified number of units of a certain item (e.g., 100,000 shares of a corporation's stock or other financial instrument).
2. Discussion of the Background
Two basic types of orders are the market order and the limit order. Market orders allow an investor to choose the timing of the order execution. The drawback of a market order is that the investor loses control over execution price and usually overpays. A limit order is more likely to result in good executions, but does not allow the investor to control the timing of execution. This is a problem, particularly when the investor is trying to follow a pre-specified trading distribution.
Several auto-trading strategies have been developed to solve or lessen the impact of this problem. One family of such strategies is referred to as a “bin-based” strategy (it is also referred to as a “time-slicing” strategy). A bin-based strategy subdivides a continuous trading period (usually a day) into bins of fixed length (e.g., 30 minutes), assigns a number of items to each bin, and then uses simple rules to trade (i.e., buy or sell) within each bin.
Certain problems exist with bin-based strategies. The bin based approach forces unnecessary structure on the trading process. For example, as the end of a bin approaches, the strategy may need to rely on aggressive orders, which may result in poor executions. Other disadvantages exist.